The Netflix Box That Never Was

We’ve written a lot about how we like Netflix’s approach to streaming content to your TV. The company’s decision to partner with hardware companies instead of building its own box was a smart one that positions it for life after rent-by-mail DVDs. But that wasn’t always the plan. The Wall Street Journal has a big piece on Netflix today that talks about how the company arrived at its current strategy — and how much it could be costing Netflix just to keep the content flowing.

The Journal writes:

After Netflix introduced its streaming service, Mr. Hastings assembled a team that came up with a prototype — a small, square metallic box that would access the Web through a consumer’s broadband connection, let viewers navigate a list of Netflix movies by remote from their couches, and sell for under $100.

But Netflix pulled the plug shortly before it was to be unveiled to the public, with company execs fearing that a Netflix-only service wouldn’t fly with consumers. The project was given to startup Roku, which sells a small, square box that puts Netflix streaming content on televisions for $100, but with Amazon VOD, and other partners to come.

While the box may sell for just $100, keeping content piped in costs considerably more. An unnamed source tells the Journal that Netflix spent roughly $100 million last year to license titles for its streaming service. To put that in perspective, if true, that $100 million got Netflix around 12,000 back catalog movie titles and TV shows. While the service’s offerings are getting better, Netflix will need to cough up some more money to get movies out of the so-called “HBO hole,” which locks up the exclusive rights to films for pay TV channels. Netflix has floated the notion of charging a premium for this content, but hasn’t formally announced any intention to do so.